Halifax offers five-year fixed-rate mortgages at lower interest rates than two-year home loans

One of the UK’s largest mortgage lenders will begin offering fixed-rate five- and ten-year mortgages at lower rates than its two-year home loans, beating borrowers’ expectations for mortgage prices.

Halifax, which is part of Lloyds Banking Group, is offering a five- or 10-year fixed-rate contract at 2.48 percent for those with a deposit of 40 percent or more, starting Monday, compared with its two-year equivalent of 2.54 percent, all with one Fee of £999.

For those with a lower deposit of 25 percent, the two-year rate is 2.59 percent, compared to 2.58 percent for the five- or 10-year contract.

mortgagor have paid more for the security of a five- or seven-year term in the past, giving them peace of mind that their monthly repayment costs aren’t going to skyrocket unexpectedly in the short term.

But interest rates on two-, five-, seven- and 10-year bonds have fallen sharply in recent months as the cost of short-term funding for lenders has risen and borrowers have sought longer-term products to protect them from rising interest rates.

“It’s pretty unheard of in the mortgage market,” said Aaron Strutt, technical director at broker Trinity Financial. “It seems like the regular form book went out the window.”

Lenders use swap rates to guide their mortgage pricing decisions, and shorter-dated swaps are currently more expensive than longer-dated swaps. These rates reflect financial markets’ belief that the Bank of England’s main interest rate will continue to rise until the end of next year, and then flatten or fall.

“It’s all about the cost of institutional borrowing. Banks can borrow longer-term at a cheaper rate than short-term,” said Simon Draper-Coates, associate director at mortgage brokerage Private Finance.

Banks also benefit from having borrowers with longer maturities, he added, because repayments over five years are more profitable than over two.

The combination of rising inflationthe war in Ukraine and a continued surge in Property Prices in UK had caused a broader shift in mood, Draper-Coates said. “Ever since the financial crisis, everyone has wanted short-term interest rates because the reality was that interest rates would be cheaper at maturity. Now we are in a completely different environment where interest rates are rising. As a consumer, you’re better off opting for a longer-term deal.”

As a major high-street lender, Halifax’s decisions are closely watched by its competitors. If its pricing changes cause borrowers to look elsewhere for shorter maturities and poach the longer-dated business from its competitors, other lenders are likely to follow suit.

Ray Boulger, senior technical manager at mortgage broker John Charcol, said: “Once you see one of the big lenders taking action, the other lenders will decide how to respond. If they feel their applications are becoming unbalanced, they will want to act on it.”

The upward trend in real estate prices has yet to be halted by inflation concerns. In its monthly home price index, Halifax said Friday that prices rose 11 percent in the year to March 2022 — the highest since mid-2007. Halifax offers five-year fixed-rate mortgages at lower interest rates than two-year home loans

Adam Bradshaw

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